Exclusive | Key accused in Cox & Kings scam blame each other as ED shifts probe to banks

In a new turn of events at Cox & Kings, the travel operator that became embroiled in a scandal over thousands of crores of missing money and was pushed into bankruptcy, the Enforcement Directorate made two arrests on Tuesday night, October 7, 2020.

ED, the agency that investigates financial crimes, arrested Cox and Kings CFO Anil Khandelwal, and its internal auditor Naresh Jain on charges of money laundering. Khandelwal and Jain will be in custody for seven days.

ED said Cox & Kings, once a leading travel company with offices in several parts of the world, manipulated balance sheets of its overseas subsidiaries to seek loans from banks. The scam is estimated at a little over Rs 20,000 crore and involves many banks across India that gave loans to the company but never got them back. Cox & Kings owes Axis Bank Rs 1,030 crore, IndusInd Bank Rs 239 crore and Kotak Mahindra Bank Rs 174 crore, according to the ED.

A senior ED official told MoneyControl that among other things, the agency is probing how so many banks offered loans to Cox & Kings and what collaterals were offered by the promoters. Under existing rules, the same assets cannot be offered as collaterals to different banks. “We are exploring the possibilities of involvement of some of the top officials of these banks in the scam,” the official said on condition of anonymity.

More arrests, said the official, are likely over the next fortnight as the probe gets deeper.

The current case pertains to a loan of Rs 3,642 crore taken by Cox & Kings from Yes Bank. The money was never returned. The ED claims the loan sanction from Yes Bank was driven by the then CMD Rana Kapoor by bypassing standard norms.

Kapoor is in judicial custody facing charges of giving loans by bypassing rules and in exchange for kickbacks. He has denied any wrongdoing.

Passing the buck and the blame

Set up in 1758 and headquartered in the UK and India, Cox & Kings was once one of India’s top tour and travel companies. It had more than 3,000 workers. Charges of financial misappropriation have swirled around the company for some years, but its collapse began last year when it began to default on a series of loan payments. It did not pay salaries to staff for months before shutting shop.

Now, top officials, top clients and the promoters of the company are blaming each other for the losses. All the accused— promoter Peter Kerkar and CFO Khandelwal—  as well an agency representing Shyam Maheshwari, the principal shareholder of SSG Capital, a distressed asset fund, who is under the gaze of investigating agencies, offered their point of view to MoneyControl for the first time after a Mumbai court ordered a probe into the scandal.

What are the charges?

In the Yes Bank case, over five years (2015-19), as many as 15 fictitious customers, including a subsidiary named Ezeego, were set up by Cox & Kings for taking the loans, according to investigators. ED found these fictitious high-value debtors in the books of accounts and also another 147 sets of non-existent customers.

Cox & Kings, ED found, had diverted Rs 1,100 crore to another stressed company with which it has no business relationship. The transfer was done without the approval of the Cox & Kings board.

A senior ED official earlier told MoneyControl Khandelwal and Jain purchased various immovable properties from cash diverted from Cox & Kings. Investigations showed Rs 150 crore were diverted from Ezeego to RedKite Capital, promoted by the family members of Khandelwal and Jain.

In another incident, according to ED, Cox & Kings sold one of its subsidiaries, Holiday Break Education Limited, UK (HBEL), for Rs 4,387 crore and instead of discharging the liability of the bank, the company siphoned off a majority of the cash. An estimated $15.34 million was transferred to Kuber Investment Mauritius, which was controlled by Kerkar.

Cox & Kings is also being probed by Kolkata Police for allegedly collecting Rs 40 crore from customers under the pretext of conducting global tours.

What Kerkar and Khandelwal said

Kerkar, in his complaint, alleged that top executives of Cox & Kings, in connivance with officials of a number of banks, swindled cash from the company. He named Khandelwal, Jain and other officials.

Khandelwal contested those allegations, adding that he did everything on the instructions of the promoters, led by Kerkar and his wife.

In his submission to ED, a copy of which is with MoneyControl, Khandelwal said the charges against him were baseless. “I am afraid that an attempt will be made to make me the scapegoat when thousands of crores in undisclosed transactions have been siphoned/diverted off by the Kerkars, whereas I have received no illegal gratification whatsoever,” Khandelwal said in his 23-page submission to the ED.

Khandelwal said he was being “fixed” by the promoters of Cox & Kings. “While I was CFO at Cox & Kings, I realised that the Board of Directors were aware of the manner in which the Kerkars were dealing with the assets and funds of Cox & Kings, and other group, promoter and associate companies. These so-called independent entities were always controlled and manipulated by the Kerkars,” said Khandelwal in his submission.

Khandelwal, who joined Cox & Kings on January 1, 2008, said his job was restricted to assist in day-to-day cash flow management under express instructions of the Kerkars. “I have seen funds being raised by Cox & Kings through borrowings in India and transferred to its domestic and overseas subsidiaries as advances and loans. The subsidiary companies would directly report to Peter and Urrshila (Peter’s wife). I was always told that these funds were required in the subsidiaries and could not come back in time.

On the issue of the sale of the education division of the UK-based Holiday Break Limited, Khandelwal said the sale generated GBP467 million (Rs 2,000 crore) but only Rs 563 crore reached the account of Cox & Kings. “Part of this money was used by the Kerkars to repay their personal loans. By March 2019, it became clear that the promoters were not ready to bring in the rest of the Rs 1,469 crore which had been received by them in overseas subsidiaries.”

ED says Cox & Kings borrowed Rs 150 crore from Axis Bank for investing in companies named Sneh Sadan Traders and Agents (SSTAL) and Liz Traders & Agents Private Limited (LTAPL) and Rs 80 crore from Ratan India Finance for investment in SSTAL. Khandelwal, now in ED custody, had told the agency that these borrowings had no connection with Cox & Kings and the funds borrowed were used for the personal benefit of the promoters.

In his first reaction to the charges made by Khandelwal, Kerkar told MoneyControl that it was grossly wrong on the part of Khandelwal to say he did not look into the day-to-day activities. “I wish to strongly refute the allegations made by (Anil) Khandelwal. He has probably forgotten to whom he is obliged to be responsible under corporate governance rules. The question of who has perpetuated fraud on the company for their personal benefit is under investigation and the facts and truth will unfold in due course.”

Kerkar said he was concerned that Khandelwal had certain confidential information in his possession. “He has clearly stated that he had handed over his computer and all records and company possessions etc on leaving the company and should therefore not be privy to any information relating to the  company.” He referred to a PwC forensic report that said Cox & Kings officials worked collectively to defraud the company.

Kerkar said he has submitted to the police copies of emails between Khandelwal and others to prove their involvement in the Ezeego case. He referred to an “independent probe” by Desai, Saxena & Associates, a chartered accountant firm, into the accounts of Ezeego. The audit traced Rs 265 crore being transferred from Cox & Kings to Ezeego and then to the account of RedKite— a company controlled by Khandelwal, Maheshwari of SSG Capital and others—during 2015-19, according to him.

In his complaint, Kerkar said RedKite records show that the Rs 150 crore it raised from Ezeego was used to acquire 32.81 percent in a company named Tourism Finance Corporation of India (TFCI). Kerkar said Maheshwari, who controls SSG Capital, and Khandelwal allegedly routed financial transactions through several corporate entities such as RedKite, Larissa Financial Advisory Services, Epitome Multitrade, Aparajita Mercantile and Monisha Financial Services.

What SSG Capital is saying

These, claimed Kerkar, were found in the forensic audit carried out by PwC, which examined allegations relating to falsifying records, siphoning off of funds, bogus sale and debt default.

This is not the first time that SSG Capital has come under a legal cloud.

Brunswick PR, an agency mandated by SSG Capital Management, said it is confident that there has been no wrongdoing whatsoever on the part of Ares SSG or our employees. “We believe that any allegations against Ares SSG and our employees are untrue and nothing more than attempts by the promoters of Cox & Kings to deflect blame onto external parties.”

The blame game has begun. Lost in the middle is an estimated Rs 20,000 crore of cash.